Are Supply-Side Online Exchanges Wise?

Bashing the recent trend towards supply-side online exchanges, Mark Walsh, president and CEO of e-business marketplace vendor VerticalNet Inc., bluntly proclaimed the resurgence of brands on the Internet and the dangers of procurement-based exchanges at the CTO Forum Wednesday.

In a speech that was at once irreverent, ironic, and passionate, Walsh poked holes in exchanges made between competitors in the effort to squeeze suppliers.

"There is a frenzy over buy-side exchanges, but this is just the press release du jour," said Walsh. "It is the first island in a large ocean of fear. Saving money on procurement is easy to understand for Wall Street, but it is really just EDI [electronic data interchange] in drag."

Walsh argued that pressuring the suppliers and opening prices up to all manufacturers is like walking onto an airplane with everyone wearing their price tag on their head.

"You have to remember that every vendor is a vendor, every buyer is a seller," said Walsh. "Healthy vendors make healthy markets."

Walsh used an anonymous example of one large supply-side exchange constituted of competitors where indecision reined on where its first meeting should be held, as evidence that the model has problems.

"I do not think that they will help and share with their competitors that they have fought bitterly with for years."

Not surprisingly, Walsh offered VerticalNet up as the solution to these exchanges, stating that the merits of building relationships with suppliers and creating a community to exchange information would far outweigh the damage inherent in supply-side exchanges.

"We are training a new generation of buyers that are concerned with nothing more than price," warned Walsh. "But we believe that content and brand will once again be king. The Internet does not change the way we do business, it just accelerates it. Brands will become a friend during a confusing time."

Though VerticalNet does not take a cut of transactions that occur or are facilitated through its 56 vertical marketplaces, Walsh intimated that it soon would and that the percentage would vary between markets.

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